Application Neutrality and a Paradox of Side Payments

Abstract: The ongoing debate over net neutrality covers a broad set of issues related to the regulation of public networks. In two ways, we extend an idealized usage-priced game-theoretic framework based on a common linear demand-response model. First, we study the impact of "side payments" among a plurality of Internet service (access) providers and content providers. In the non-monopolistic case, our analysis reveals an interesting "paradox" of side payments in that overall revenues are reduced for those that receive them. Second, assuming different application types (e.g., HTTP web traffic, peer-to-peer file sharing, media streaming, interactive VoIP), we extend this model to accommodate differential pricing among them in order to study the issue of application neutrality. Revenues for neutral and non-neutral pricing are compared for the case of two application types.